The chancellor of the exchequer, Alistair Darling stated: "I can announce today that following the discussions with the Governor (of the Bank of England) and the Chairman of the FSA, should it be necessary, we, with the Bank of England would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability."

He added that he had taken the decision "in the current market circumstances and because of the importance I place on maintaining a stable banking system and public confidence in it."

In my pre market open report ( Northern Rock Panic - FSA Compensation Scheme Savings Limits Are Too Low and Need to Be Raised ) , I stated that it was imperative for the Government to step in as a matter of urgency and guarantee that all deposits are protected at 100%, as there was a high risk of the panic spreading to other financial institutions, with Bradford and Bingley and the Alliance and Leicester most at risk of being the next in line for panic amongst their depositors. This regardless of their fundamental financial positions. I was greatly dismayed at the failure of such a statement to have been made before the open, which set the scene for another bloody day for the banking and financial sector.

The Northern Rock stock price continued its crash today by falling a further 35%, sharp falls followed in other mortgage banks at risks of depositor panics, with Alliance and Leicester down more than 30% and Bradford and Bingley down 15%. There was serious risk of a meltdown in the UK banking system at today's market close, and therefore the unprecedented step taken to prevent the panic spreading to other UK banks. It is highly unfortunate that this action was not taken either on Friday or before today's market open, as it was the lack of saver protection that was driving the panic amongst Northern Rock savers.

By Nadeem Walayat
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